ECB chief says trade restrictions hold back prosperity

ISTANBUL

European Central Bank (ECB) President Christine Lagarde said Wednesday that trade barriers and restrictions hold back prosperity.

"The times when the United States has been in strong leadership, and when the economy has been prosperous, have most often coincided with periods of trade around the world and engagement of the country," she said at an event hosted by the Atlantic Council in Washington, D.C.

"So, we are not in a world where trade stops and trade declines. We are in a world where trade continues. But it continues in a different way," she said. "And I think we have to be attentive to the composition and the distribution; so no less trade, but trade with other partners, trade in a different risk distribution, if you will."

Lagarde noted that there is "clearly" overcapacity in certain sectors in China, and stressed that there are rules of trade that members of the World Trade Organization (WTO) have consented to when they joined the economic organization.

"But I think that jumping to the conclusion that the economy will fare better at home because we have a big market, simply because we will raise tariffs, I think is a bit of a far-fetched conclusion that I don’t -- I don’t see in the history of large economies," she said.

"Because when you look at that -- you’re a historian -- when you look at that, it’s pretty clear that periods of restrictions and barriers have not been periods of prosperity and strong leadership around the world," she added.

As for the ECB's monetary easing, Lagarde said the central bank is trying to dissect inflation as best as it can to understand its root causes.

In addition, she noted the distinction between the ECB and the US Federal Reserve.

"It’s different from the Fed. The Fed has this dual mandate of price stability but also growth, economic activity, employment. The ECB does not have that. We have a primary mandate which is price stability," she said.

Lagarde said the ECB is attentive to economic growth because it has effects on inflation.